Company Update - CIMB
Group (REDUCE, maintain)
- Concerns over further earnings downgrades
We reiterate our REDUCE rating on CIMB Group but
have lowered our PT from RM7.05 to RM6.63, based on a P/BV target multiple of
1.38x on FY15E ROE of 11.9%. We remain cautious on the Group's outlook,
largely due to risks emanating from CIMB Niaga (1H14 net profit was down 8.5%
yoy) while outlook in 2H14 remains subdued with expectations of further
increase in credit costs (driven by Indonesia), lower non-interest income (as
Banca fees were capped by the Bank Indonesia) and continuous NIM pressure
(10bps compression at the Group level). Consensus FY14E net profit looks
aggressive at RM4.6bn relative to CIMB's 1Q14 net profit of RM1.1bn. Coupled
with a weak 2H14 earnings prospects, this will likely put pressure on stock
price. Meanwhile, we are also concerned about CIMB potentially forking out a
premium to pay for the M&A with RHBCap and MBSB.
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